UK banks ‘have much to fear’: competition watchdog set to probe Lloyds, RBS, HSBC and Barclays

Barclays, one of Britain's largest banks, has been engulfed by financial scandals in recent years. Barlcays, London. Courtesy of Reuters / Stefan Wermuth / Reuters

Barclays, RBS, HSBC and Lloyds may be forced to break up following a finance watchdog’s inquiry. The watchdog claims Britain's banking sector is characterized by anti-competitiveness and a failure to meet ordinary citizens and small business' needs.

Outlining its proposals
for a sweeping 18-month investigation into Britain’s major banks,
the newly-established Competition and Markets Authority (CMA) has
eclipsed its predecessors who were unwilling to launch an inquiry
of this nature until 2015.

Britain’s ‘big four’ - Lloyds Banking Group, Royal Bank of
Scotland (RBS), HSBC and Barclays – dominate the UK's
£10bn-per-annum banking sector. All four banks have been engulfed by
scandal in recent years, yet they collectively control 77 percent
of UK citizen’s current accounts, 85 percent of UK small
business’ current accounts, and an overwhelming 90 percent of UK
business loans.

Two CMA studies, published on Friday, concluded core elements of
the UK’s retail banking sector lack “effective
competition” and ultimately fail to meet the needs of
personal consumers or small to medium-sized enterprises (SMEs).

The CMA’s research revealed that while public satisfaction with
these dominant banks falls shy of 60 percent, their market shares
have remained steadfast. The studies concluded smaller banks with
higher satisfaction ratings were simply unable to compete or
acquire a sizeable share of the market.

“Competitive personal and
SME banking markets are essential to households and businesses
throughout the country, and to the success of the UK economy.
However, our studies have found that despite some positive
developments, significant competition concerns remain which mean
that customers may not be getting consistently good service and
value from their banks,” Alex Chisholm, CMA’s chief
executive, said.

The CMA’s plans to
launch the inquiry have emerged at a time when scrutiny of the
UK’s banking sector is gathering momentum in Britain’s political
ranks.Labour
leader Ed Miliband, has vowed to back a competition investigation
if elected in next May’s general election. And Shadow Chancellor
Ed Balls emphasized the need for widespread reform on
Friday.

"As we said earlier this year, in the next parliament we need
to see at least two new challenger banks and a market-share test
to ensure the market stays competitive for the long term,"
Balls said.

National Chairman of the
Federation of Small Businesses John Allan cautions against an
effective monopoly held by Britain’s biggest banks, outlining its
detrimental effect on small businesses.

"Since Cruickshank's report, a few very large banks have
dominated the market for small business accounts, which suggests
that competition has remained limited. In addition, there
continue to be a range of barriers to entry that either
potentially deter entry to the market or block new entrants'
growth.This means small firms have not seen the full
benefits of reduced costs, increased choice and better access to
finance had these structural issues not been in
place,” he said.

The British Bankers'
Association (BBA) argues there are currently substantial changes
underway in Britain's banking sector. The association recently
published an array of proposals it claims would encourage and
facilitate the growth of new and emerging UK banks. The BBA hoped
regulators and politicians would be amenable to its suggestions.
But the CMA have elected to pursue a full-scale inquiry.

In theory, such an
inquiry could order a full-scale break up of Britain’s largest
banks. But such comprehensive reform is rare. Following the
inquiry, the CMA will most likely demand banks cultivate new
networks of branches and adopt greater levels of transparency
with respect to their charges.

"We've been saying this for years. People want real
alternatives. This is something the big banks would have you
believe don't exist, but they do”, Charlotte Webster,
campaign manager for the group said on Friday.

Millions have switched banks in the last year, but a concrete
shift from a monopolized banking sector to one characterized by
diversity and ethics is yet to be realized. Reflecting on whether this CMA
investigation will reap positive change, Joel Benjamin - a
leading researcher at MYM - told RT on Friday:

"The CMA is a new regulator being reformed from the OFT so
the jury is out in terms of the CMA's effectiveness. We know Britain's largest banks have
substantial lobbying power, and will spend the next 18 months
trying to water down this inquiry and any subsequent
recommendations. At MYM we consider financial reform too
important to be left in the hands of politicians, and believe
real change will come when people are empowered to move their
money - voting with their feet to demand a financial system that
serves people and the planet."

"Recent promises to reform bank
culture and stop the fraud and mis-selling from the likes of
Barclays' Antony Jenkins have largely gone unfulfilled, and
politicians and the public have lost patience", he
concluded.

The CMA's investigation is the 10th analysis of the market since
Don Cruickshank was commissioned to examine the industry by
then-Prime Minister Gordon Brown in 1999. Former investment
banking correspondent at the Financial Times, Chris Hughes,
suggests UK banks “have much to fear” from the probe.
But the efficacy, comprehensiveness and independence of this
planned inquiry remains to be seen.